Sterling struggles near 5 1/2-year low

LONDON: Sterling struggled to recover from a 5-1/2-year low on Monday, with investors finding few reasons to buy the currency and several risks, such as a possible "Brexit" from Europe, sliding oil prices and a tepid economic outlook.

The pound has skidded almost 10 percent against the dollar over the past six months, with around half of that fall coming in the last month alone. It hit $1.4228 in early trading on Monday, its weakest since May 2010, before edging up to $1.4271 by 1630 GMT.

Sterling has also racked up eight consecutive weeks of losses against the euro, falling almost 10 percent in that period against a currency that most analysts reckoned was set to weaken against the pound. On Monday sterling clawed back 0.4 percent to 76.27 pence, still leaving it close to a one-year trough of 76.935 pence hit last week.

Lacklustre growth data and inflation near zero have driven a push-back of expectations for when the Bank of England will start to raise interest rates into 2017, which has weighed heavily on the currency.

Growing worries about a vote on Britain's membership of the European Union have also soured sentiment. Prime Minister David Cameron has promised a vote on the issue by the end of 2017, but some investors reckon it may come as early as June and are stepping up bets against the pound in the derivatives market.

"Fundamentally, two big issues are weighing on sterling," said Societe Generale currency strategist Alvin Tan. "One is Brexit and the other is that growth numbers have been on the weaker side and that's pushed back BOE hike expectations."

But Tan added that from a technical perspective, sterling looked oversold, and the fact that sterling had broken out of its nine-month range against the euro had exacerbated its falls.

Investors are now eyeing inflation data and a speech from BoE Governor Mark Carney on Tuesday for their next cues. Traders said although the annual headline inflation and monthly core inflation numbers may show a slight rise, investors are likely to stay away given the risks for sterling.

"From an economic standpoint, the relentless pressure in commodity prices will drive inflation to fall to further dangerous levels, and this will also probably weigh on investor sentiment (towards the pound)," said Jameel Ahmad, chief market analyst at FXTM.